Thursday, May 31, 2018

Red Tape Cutting

There are many things wrong with regulations—almost as an entire category:

·         The definition.
·         The negative economic effects.
·         The beyond the Constitution regulatory tyranny.

As I’ve mentioned before, our founders, when they used the word in the Constitution—i.e., “regulate Commerce,” and “well-regulated Militia”—they meant

to make regular—to make sure something can happen regularly, without blocks or interference. That’s what the founders meant by regulation interstate commerce.
But in today’s government, regulation means something else: governmental power to decide when, how, and whether something can happen. It’s arguable that all government regulation prevents, rather than provides, regularity of something happening.
What we need is for government—especially government regulations—to get out of the way, so that what we want to happen regularly, like commerce, can happen freely.

President Trump cuts red tape
in ceremony in December 2014

A Just the Facts article, “The Effects of Regulations on the Economy,” by James D. Agresti, shows how regulation has actually prevented what it claims to be trying to do:

For example, a 2015 working paper from the Harvard-Kennedy School of Government found that regulations are likely the main reason why community banks’ share of the U.S. banking market fell from more than 40% in 1994 to around 20% in 2015. This is because “larger banks are better suited to handle heightened regulatory burdens than are smaller banks, causing the average costs of community banks to be higher.” Likewise, a 2016 paper in the DePaul Business and Commercial Law Journal found that the 2010 Dodd-Frank “Wall Street Reform and Consumer Protection Act”:
could actually be enhancing the consolidation of the banking industry, in direct opposition to its principal purpose—eliminating “too big to fail” banks. While the industry has intentionally trended towards consolidation in the past, the current dramatic increase of consolidation of banking assets is likely an unintended consequence of increased regulation. This consequence comes from astronomical regulatory costs passed on to community banks, as well as increased capital requirements that diminish these banks’ competitiveness. Dodd-Frank has exacerbated this problem, and it will likely result in further increased consolidation of the banking industry.
What do we keep saying about the unintended consequences of government interference?

If the government wants to implement something beyond the proper role of government, not only will government fail to achieve the stated goals; it will likely do exactly opposite of the stated goal.
Why isn’t that obvious enough that people would stop wanting government to interfere?
It’s hard to get data on the negative effects of regulation on the economy. As Anne C. Steinemann, author of the textbook Microeconomics for Public Decisions, says, it’s pretty easy to create a cost-benefit analysis that will “produce a desired outcome,” and “it is practically impossible to predict all the future impacts” of a government program, “let alone their magnitudes and their probabilities of occurrence.”

An example provided by Agresti compares pro and con arguments. On the pro side, the Obama administration drafted a report in 2014

Estimating the costs and benefits of major federal regulations from 2003 to 2013. It concluded that the costs were somewhere between $57 billion and $84 billion, while the benefits were much greater at $217 billion to $863 billion.
Since we were in an elongated recession without the expected recovery through most of those years, that seems like it could be just a wild invention to say, “You think this is bad? Imagine how bad it would be if we hadn’t stepped in.” You can’t exactly “prove” an imaginary alternate universe.

Meanwhile, a 2013 paper in the Journal of Economic Growth found: 

The effects of federal regulations on the U.S. economy have been “negative and substantial.” They estimate that GDP would now be more than three times larger if federal “regulation had remained at its 1949 level.”
Which is right? Probably the one that coincides with the principles that lead to freedom, prosperity, and civilization. In other words, government regulation, which is rule by unelected bureaucratic fiat—or tyranny—is unable to lift an economy out of poverty and into prosperity. So if the pro-tyranny side is claiming their interference is creating all kinds of magical benefits, chances are they’re skewing the data for their purposes or simply outright lying.

Agresti suggests there are plenty of other indicators to lead to the conclusion that regulation is a negative on the economy:

A key driver of economic growth plummeted in the wake of two major regulatory expansions in modern U.S. history. This element is productivity, and as explained by former Federal Reserve Chair Janet Yellen (and various other economists with wide-ranging political views): “The most important factor determining living standards is productivity growth, defined as increases in how much can be produced in an hour of work.”
The Journal of Economic Growth study, mentioned above, uses historical data, of which there is an abundance, and finds

that regulations have “strong and robust negative effects” on economic growth, and these “results are qualitatively consistent with those obtained from studies using the various cross-country and panel data sets on regulation.”
Notably, regulations harm the economy by harming productivity. What we can see is that federal regulations spiked under President Carter (1977-1981) and Obama (2009-2017). “In the wake of both of these regulatory expansions, productivity growth crashed,” as you can see in the chart:

Chart from Just the Facts

So, while we don’t have absolute cause-effect proof, there is plenty of evidence for reasonable people to see the harm government regulation (which is, almost by definition, over-regulation) does to the economy.

What we ought to insist on is adherence to the Constitution; that would give us plenty of evidence that freedom from regulation is good for the economy. But we haven’t tried that experiment in a very long time. The Congress has mostly abdicated its legislative authority to the regulatory arms of the executive branch. And the courts have mostly bowed to the “experts” of those regulatory commissions.

However, there has been some recent progress from this administration: the FCC’s net-neutrality repeal, HHS healthcare reforms, EPA details, some Education Department deregulation. These are actual campaign promises President Trump made that he is keeping.

There are three ways to accomplish regulatory reforms:

·         Executive orders ending the executive orders of the previous administration (easiest to do, but also easiest to reverse by a future administration).
·         Legislation requiring change, and returning responsibility for lawmaking to Congress, and, in many cases, returning the judicial functions to the judiciary, instead of leaving all powers in the hands of regulators to determine law, prosecute, and punish.

·         Reform from within regulatory agencies, which depends on appointees to champion the goal of deregulation.
Adam J. White, writing for the Hoover Institution (in “Trumping the Administrative State”), says, ”2018 will mark the beginning of a steady wave of agency decisions that will immediately be appealed to federal courts.” The most high-profile of these

will be filed strategically before courts staffed disproportionately by sympathetic judges in Washington, D.C., or on the West Coast. This litigation may come to resemble the lawsuits challenging President Trump’s immigration and refugee orders: Judges will scrutinize agency actions much more aggressively than before. The traditional deference by judges to regulatory agencies’ decisions is unlikely to prevail, and courts will undoubtedly invoke statements by the president or by his appointees that they see as undermining the credibility that agencies usually are afforded. (This will be quite a turnabout after Democrats less than a year ago criticized President Trump’s appointee to the Supreme Court, Neil Gorsuch, for having questioned the amount of deference” that courts give agencies.)
Of the legislative option, he says this is “an opportunity Republicans may not enjoy again for a long time.” And he adds, if they fail to use it,

It would be disappointing and ironic: Congress’s inaction is itself one of the main causes of our modern administrative state. By failing to legislate on the issues of greatest national interest, Congress creates a policy vacuum that agencies fill unilaterally with regulations. Lawmakers further compound this problem by failing to reform the antiquated appropriations process that no longer ties Congress’s oversight of agencies to its constitutional “power of the purse.”
As for the third option, he makes these suggestions for the regulatory agencies:

They can unilaterally adopt reforms to promote transparency and accountability within their own houses. Perhaps the best example of this so far are the efforts at the Justice Department and Education Department to scale back their reliance on “guidance” documents, a broad category of agency pronouncements that regulate the public but that do not undergo even the minimal procedures for public accountability otherwise required of new regulations. If these two departments succeed in reforming their own practices, they could come to be seen by the public (and by judges and legislators) as the regulatory equivalent of “best practices,” raising the bar for what we expect of other agencies.
So, we’re at a time when we have at least some reason to be hopeful.

In his conclusion, White talks about the most lasting reforms of the Reagan era; they lasted because they became systemic. They became the expected practices over several administrations. Based on that, he says,

Years from now, we may find that some of the Trump administration’s most important regulatory reforms in 2018 were the ones that attracted the least attention. Executive orders and regulatory repeals announced to great fanfare are very important; even more important are reforms changing the culture of modern regulatory agencies, achieved through sustained effort within those agencies, to little fanfare and no ribbon-cutting.
In one of the announcements, President Trump cut a big red ribbon, to mean cutting the “red tape.” I hope his commitment to that is real. And I hope the results will become sustained changes that return us to the freedom that helps us thrive and prosper.

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